The Delhi High Court has expressed a prima facie view to uphold Sections 69 and 132 of the Central Goods and Service Tax (CGST) Act provision which gives the authorities the power to arrest any person if there exists a “reason to believe” that the person has committed tax evasion. A Division Bench of Justices Manmohan Singh and Sanjeev Narula was hearing a plea preferred by a man and a firm who had allegedly availed of fraudulent IGST refund as well as Input Tax Credits.
It had been submitted by Advocates Jagmohan Bansal and JK Mittal that the aforementioned provisions were unconstitutional as they were provisions which were criminal in nature and therefore, could not have been enacted under Article 246A of the Constitution of India, 1950. It was also emphasized that the power to arrest and prosecute were not ancillary and/or incidental to the power to levy and collect goods and services tax.
“In the alternative, they submitted that Entry 93 of List 1 confers jurisdiction upon the Parliament to make criminal laws only with respect to matters in List 1 and not CGST. Therefore, according to them, Sections 69 and 132 are beyond the legislative competence of the Parliament”, the bench noted the petitioners’ argument.
While rejecting interim prayer, the Court expressed a prima facie view in support of the provisions.
“Accordingly, this Court is of the prima facie opinion that even if Sections 69 and 132of the Act could not have been enacted in pursuance to power under Article 246A, they could have been enacted under Entry 1 of List III, as laying down of a crime and providing for its punishment is criminal law.Consequently, this Court is of the prima facie view that in either option both Sections 69 and 132 of the Act are constitutional and fall within the legislative competence of Parliament”
WHAT THE COURT HELD
Presumption in favour of constitutionality.
The Division Bench held that there is always a presumption in favour of constitutionality of an enactment or any part thereof, and the burden to show that there has been a clear transgression of constitutional principles is upon the person who impugns such an enactment. Further, it was observed that laws were not to be declared unconstitutional on the “fanciful theory” that there is a remote possibility of abuse of power.
“In fact, it must be presumed, unless the contrary is proved, that administration and application of a particular law would be done ‘not with an evil eye and unequal hand’.”
Scope of Article 246A is significantly wide.
The Court then went on to state that the Goods and Services Tax was a unique tax inasmuch as the power as well as field of legislation were to be found in a single Article, i.e. Article 246A. Further, it was held that the scope of Article 246A was significantly wide as it not only empowered both Parliament and State Legislatures to levy and/or enact GST Act, but also granted the power to make all laws ‘with respect to’ Goods and Services Tax.
It was observed that power of arrest conferred by Section 69 was not a general power of arrest, but was restricted to certain offences covered under it and Section 132.
“Consequently, this Court is of the prima facie view that the expression ‘with respect’ GST used in Article 246A, being a constitutional provision, must be given its widest amplitude and would include the power to enact criminal law with regard to GST”.
Further, the Bench noted that there was no conflict between the operation of Article 246A and Article 246 as a non-obstante clause had been added to the former in order to clarify that both the Parliament and the State Legislatures would have simultaneous powers in relation to GST.
Power to arrest and prosecute are ancillary and/or incidental to power to levy and collect GST.
“The Court is of the prima facie opinion that the pith and substance of the CGST Act is on a topic upon which the Parliament has power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy and collect goods and services tax”.
The Bench state that when a law was dealing with a subject in one list, which was touching upon a subject in another list, what had to be ascertained was the pith and substance of the enactment – the true object of the legislation.
Entry of “Criminal Law” in List III is significantly wide and includes all criminal laws except the exclusions.
The Court rejected the Petitioners’ submissions to hold that even if an assumption was made that power to make offence in relation to evasion of GST could not be found under Article 246A, the same could be then be traced to Entry 1 of List III wherein the term “Criminal Law” was significantly wide and included all criminal laws, except the exclusions.
The 1994 case of Kartar Singh v. State of Punjab was invoked by the Bench to shed a light on the language used in the aforesaid entry and how it was couched in very wide terms.
Supreme Court and Gujarat High Court’s view with regard to application of Chapter XII Cr PC to CGST Act cannot be ignored.
The Court recorded the observations made by the Gujarat High Court in the case of Vimal Yashwantgiri Goswami v. State of Gujarat wherein a view contrary to the Petitioner’s submission has been taken.
It was also noted that the Supreme Court’s decision in Deepak Mahajan ensured that the argument of the Petitioner as to prejudice being caused due to not being able to avail protection under Article 20(3) of the Constitution and/or the provisions of CrPC do not apply even when CGST Act is silent, was untenable in law.
In light of the above, after finding force in the submissions of ASG SV Raju, appearing on behalf of the Respondent, the Court held that it was not inclined to interfere in the investigation.
The Court clarified that its views are of prima facie nature at the interim stage and will not prejudice final arguments.
“It is clarified that the observations made herein are prima facie and shall not prejudice either of the parties at the stage of final arguments of the present writ petitions or in the proceedings for interim protection”.